Beware of Chinese 'Investing' in Oz.

A bit of grumbling in the Tavern today.  Even I was a bit taken aback when a chap walked in and offered to buy the place. He certainly looked well heeled: he even had cowboy boots on direct from Shanghai. I understand that the Tavern is a fine place, unique even, but when someone comes along and wants to 'invest' I tell them it is already wholly-owned and pull them a pint. 

But they just want to Invest, they say.

BULLS...tuff, says I.

Look, I do wish the Ministers and bureaucrats could get it into their thick skulls that when someone buys your house they are not 'investing' in you. They are buying your house. Geddit? It ain't that hard to grasp. You move out and they move in. It becomes their house.

Its the same with land. 

What would an American say is a Chinese chap wandered in with a wad of cash (solidly backed by the biggest pile of gold you never did see) and bought Texas?  Go on, give a guess.

Well there are 'properties' in Oz that are as big as Texas. Stations. Farms. Effin' huge places, largely populated by sand, scrub and cattle. And the Oz Gummunt just lets any old sod buy in.

I have no problem at all with 'investment'. But I do know the difference between investing and buying.  Invest by all means, in the productivity and even the profitability of something, but when you buy it, you own it.

Matthew Cranston and Lisa Murray had some words for anyone who cared to listen. Most Australians are completely unaware of the 'investment' in our land by overseas furriners, whatever their colour, creed, nationality or eye-shape.

Sue Neals, too, spoke about the recent Buy-up of a large Tasmanian property.

Sale of Tasmania’s Van Diemen’s Land Company to Chinese approved by government

Private Chinese company Moon Lake Investments has been given the green light by the federal government to buy Australia’s biggest dairy farming business, Tasmania’s Van Diemen’s Land Company.

Treasurer Scott Morrison announced today that, after receiving advice from the Foreign Investment Review Board, he did not believe the $280 million acquisition by Moon Lake and its owner, Chinese billionaire Lu Xianfeng, was contrary to the national interest. 

 http://www.theaustralian.com.au/business/companies/sale-of-tasmanias-van-diemens-land-company-to-chinese-approved-by-government/news-story/3ab349972d094cdc411763124217196f?nk=1dc4d9f3f2a05effc85fce79fb2efc8a-1470547673

The controversial decision follows strong opposition by many Tasmanians of the sale to Chinese interests in the face of two competing local offers for VDL from former Tasmanian businesswoman and Kathmandu clothing empire founder Jan Cameron, and Rob Woolley’s TasFoods company. 

VDL welcomed the approval and said it would be business as usual for customers, suppliers and employees, but federal MP Andrew Wilkie said he was disappointed at the sale of such a strategic agricultural asset to a foreign interest.

So, onto the bigger picture. And what a big one it is.

China's hunger for Australian agricultural land only the beginning

The conditional $371 million purchase of Australia's largest land holder S. Kidman & Co by China's Dakang is the beginning of an ambitious plan by the country to secure more agricultural land and feed its population.  

 http://www.afr.com/real-estate/chinas-hunger-for-australian-agricultural-land-only-the-beginning-20160420-gobh2t

China was Australia's largest source of foreign investment in agriculture last year, spending $2.5 billion on our farms and food factories – more than double that of the United States.   

While public and political interest grows when China makes any investment in Australia, nothing seems to spark debate quite like that of a big land deal.  

Debate? You would be hard pressed to hear any 'debate' amid all the talk of this or that celebrity and nonebrity boob job or sex change and whatever seeps out of our cess-pit schools. 

While many Australians – including politicians Deputy Prime Minister Barnaby Joyce and Liberal Senator Bill Heffernan, and controversial businessman Dick Smith – see China's investment as an opportunistic land grab, many Chinese see it as a pioneering effort from national heroes. 

China's ambition

Holding Redlich partner and head of the firm's China practice Carl Hinze has one of the best insights into how China's ambition will play out in Australia. 

After living in the country for 10 years and spending most of the past 25 years doing deals there, he has learnt to speak the language fluently and understand the culture.

"The reality continues to be that Chinese buyers have a demand which cannot be satisfied by current capacity in Australia. The scale of their needs is mind boggling," Mr Hinze says.

Those Chinese companies coming out to Australia and buying land are seen as national heroes.

"Private Chinese business people who make successful investments in Australia's agriculture in pursuit of China's 'going out strategy' gain 'face' back home and that 'face' can open doors and secure opportunities in China which would otherwise not be available to them."

However, he says it is more than that. "China's ambition is about combining the commercial objective of pursuing profit-making opportunities with the added benefit of achieving China's food security objectives."

I can understand them wanting food. The Tavern's Restaurant has to get food in daily. But there is a difference between doing a good deal with a farmer.... and buying the farm from under him.

Part of the motive is about looking for more secure investments abroad now that the investment returns on property and mining in China are trending down. 

"They are looking for less riskier investments. Their initial investments abroad are about doing what they know best, investing in commercial and residential property, but the scale in the Australian market is so much smaller than what they are used to in China. They then diversify into areas they are not so familiar with, and the classic area is agriculture."

'Profit paramount'

Ashurst partner Kylie Lane, who has led several major Chinese agricultural transactions, says profit motive is paramount.

Mandy Rice Davies moment here. "Of course he would say that". 

"China's interest is more about profit motive and a desire to diversify income into a safe country," Ms Lane says. 

"I wouldn't discount the national champion approach, both are interconnected but I think it depends more on the entity you are interacting with."

Yada yada yada. Hey mate, they are BUYING, not just 'investing in profit'. No-one minds them, investing in profit'. Go for it.  The Farengi are more open about matters.

Since 2012, when a formal meeting between more than a dozen Chinese companies and Australian government officials explored land acquisition opportunities, investment from China has grown rapidly.  

Hunan Dakang Farming Pasture, majority owned by Shanghai-based conglomerate Pengxin, agreed to pay $371 million for S. Kidman Co  last week, which owns more than 10 million hectares across Australia. 

(Texas, by comparison, is 69 mil hectares.)

"This deal is to promote the development of the whole supply chain of our imported beef business," Dakang said, "We will connect premium overseas resources with domestic market and supply high-quality protein food for the health of citizens."

Chinese billionaire Xingfa Ma who snapped up Wollogorang​ and Wentworth cattle stations on the shores of the Gulf of Carpentaria in the Northern Territory for $47 million last year has a similar motive.

Mr Ma, the founder and chairman of Tianma Bearings Group, is looking to diversify his business operationally and geographically and the company's latest annual report clearly earmarks agriculture as a "growth engine".

Extensive interest

The chairman of New Hope Group Liu Yonghao, who has pledged to invest $500 million in Australian agriculture over the next three years and who has already purchased a major abattoir in Queensland, said China's was very attracted to Australia's quality land.

"Australia has a vast landmass, good grasslands and sunshine," he said. 

"It is our hope to bring Australia's beef and mutton into the market of China. We should say these investments are beneficial to Australia and China."

We should make a concerted effort to educate the chinese in our Greenie, Feminist, Stupity-Driven political climate.... oh and scare them off with climate change fantasies too. 

The list goes on and on. 

Austrade's trade commissioner in Chengdu, Jeff Turner, said last year at Austrade's Australian Beef Industry Seminar in Brisbane that the line up of Chinese interests was extensive with as many as 300 Chinese cattle and cattle-related companies looking to invest Australia.

The chairman of Chongqing Hondo Agriculture Group Co, Qin Ya Liang said he wanted to buy farms.

"We are here looking for investments in cattle farms – the bigger size is good," 

Mr Qin said through his interpreter Clement Quan. 

No. They are looking to BUY our farms. 

"I like Australia because there are big farms and we are wanting to increase our consistency of supply," he said.

Other major Chinese groups such as Greenland and Shimao have publicly declared they are looking to buy into agricultural land.

New rules

And this is all despite new Foreign Investment Review Board rules which now require Chinese investments in agricultural land over $15 million to be vetted.

How long the Chinese fuelled rush for agricultural land will continue depends on so many factors but key among them is China's restrictions on capital outflows and Australia's own regulations.

"Chinese investors are certainly thinking long and hard about their Australian investments," Mr Hinze says, "this reticence is fuelled, no doubt, by Chinese concerns and misunderstanding about the Australian regulatory environment for Chinese investment".

"With the Chinese government looking to stem net capital outflows through once again tightening controls of the capital account, and with recent efforts to reignite the property sector in China, we are noticing a degree of reticence among Chinese clients about investing in Australia."

Good. The Chinese are getting 'reticent' are they? High time WE got a bit of that too. Invest in it.

What is the  Reticence Futures Market looking like?

Have a drink. My Supplier cannot be bought.

Pax